Commentary

Smucker's Taking In Pets; Buys Maker Of 9Lives, Milk Bone

If it’s Smucker's, it now has to be meow and woof, too. The homey Midwest maker of jams and spreads is diversifying into pet foods with the acquisition of Big Heart Pet Brands, which markets Meow Mix, Milk-Bone, 9Lives, Gravy Train, Kibbles’nBits and other well-known brands, in a deal valued at $5.8 billion when debt is included.

J.M. Smucker CEO Richard Smucker “called the acquisition ‘transformational’ for his Wayne County [Ohio] company,” writes the Akron Beacon Journal’s Jim Mackinnon. “Becoming a pet-food maker creates a ‘third platform,’ for company growth, alongside food and beverages,” he said.

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Smucker is a great-grandson of Jerome Monroe Smucker, who first started selling apple butter in 1897, Michael J. de la Merced reports in the New York Times. The company bought Folger’s coffee from Procter & Gamble in a $3 billion stock deal in 2008; it remains the No.1 selling brand in its category in the U.S.

“Obviously, there is a lot we need to learn about the pet-food business,” Smucker said, Annie Gasparro and Ryan Dezember report in the Wall Street Journal. “But there was a lot we didn’t know about the coffee business when we got into that.”

The acquisition “supports Our Purpose of ‘helping to bring families together to share memorable meals and moments,’ as we recognize that pets are cherished members of the family,” Smucker said in a release announcing the deal. “With approximately two-thirds of U.S. households having at least one family pet, we will now be able to serve the mealtime and snacking needs of the whole family.”  

“The pet-food industry, which had $73 billion in global sales in 2013, is dominated by two other companies better known for their human food,” the WSJ’s Gasparro and Dezember write. “Nestlé SA had about 35% of the U.S. market as of 2013, according to Euromonitor International. Mars Inc. last year acquired Procter & Gamble Co.’s pet-food brands for $2.9 billion, giving it about 23% of combined market share. Big Heart ranked third with about 13%.”

“Big Heart’s selling group, KKR & Co., Vestar Capital Partners and Centerview Capital, are exiting the successful take private, formerly known as Del Monte Foods, by accepting mostly stock from J.M. Smucker,” Antoine Gara reports in Forbes.

 “In total, the PE investor group will receive $1.3 billion in cash and 17.9 million shares of J.M. Smucker worth roughly $1.9 billion as of the close of trading on Tuesday. The structure of the deal underscores how KKR and other large private equity firms are increasingly willing to accept public shares, instead of cash, as they exit large LBO transactions.”

Big Heart employs nearly 2,500 people with annual sales of about $2.3 billion and adjusted earnings of $450 million, according to Bloomberg’s Nicholas Turner. It is based in San Francisco. Big Heart CEO David West is joining Smucker's board and will serve as president of its pet food operations, Mark Calbey reports in the San Francisco Business Times.

“In my household, my dog gets better treatment than I get,” West tells the NYT’s de la Merced. “Our values and theirs, they really just sat right on top of one another.”

Marc Gunther took a look at what made a manufacturer of “prosaic” products thrive more than a century after its founding in a story he wrote for Fortune in 2010. Richard and his brother Tim, who was co-CEO of J.R. Smucker at the time, are both Wharton graduates who “led a strategic makeover of the company in the 1990s and engineered a series of shrewd acquisitions in the last 10 years,” including Jif peanut butter, Crisco shortening and Pillsbury cake mixes, Gunther pointed out. As one analyst told him, they “are clearly focused on delivering shareholder value.”

“But,” Gunther wrote in a post about the story, “I believe that the Smucker’s corporate culture, which has been shaped over the years by the family’s religious values, has been the key to its staying power. Tim and Richard see themselves as stewards of a family business whose reputation for integrity and decency is one of its most valuable assets.”

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